Insurers in Quebec will be pleased to know that in two years, the compensation tax on insurance premiums will be abolished.
The current compensation tax of 0.48% will be reduced to 0.3%, starting April 1, 2017. According to a release by TMF Group, this new rate will be effective until March 31, 2019, when the tax is due to be discontinued for good.
Learn more about financial services here.
The abolishment of the tax is part of an effort to harmonize Quebec’s sales tax with the federal goods & services tax.
The compensation tax was implemented based on Quebec’s old sales tax rules. Under said rules (prior to March 31, 2010), financial institutions were zero-rated and application for an input tax refund (ITR) from the financial institutions was made possible. To cover for the costs of the governing entity that grants the ITRs, the compensation tax was created. Originally, the rate was set at 0.3%.
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On March 31, 2010, the authority raised the tax rate to 0.55% in an effort to maintain the budget balance; this rate ended December 31, 2012.
Notably, the compensation tax could have been waived as early as January 1, 2013, when Quebec was trying to balance its sales tax system with the federal government’s own goods & services tax system. Also during this period, financial services were declared exempt from tax rather than zero-rated. The authority chose to keep the tax for budget purposes, however, and lowered the rate.
The tax rate increased further to 0.48% on December 03, 2014.
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